Reference-Based Pricing: A New Arrow in the Quiver

In an effort to combat rising healthcare costs, self-insured employers have turned a new page. Under reference-based pricing models, the plan will reimburse costs up to a pre-set limit.

Reference-based pricing works. A recent Reuters Health study shows that average costs for diagnostic testing were reduced by a third, as compared to more traditional reimbursement protocols. In this study, Safeway, and its plan administrator, Anthem, applied reference-based pricing to diagnostic testing. Data for 30,000 Safeway employees from 2010 to 2013 and 180,000 Anthem enrollees (not subject to the reference-based pricing), totaled 2 million claims and 285 diagnostic test types. During this period, the average price per test by Safeway fell from $27.72 to $18.90, as compared to the Anthem enrollees.

Reference-based pricing works best for routine care like diagnostic testing where there is no significant quality variation. European countries have also applied this to pharmacy pricing. With the different dispensing options in each diagnostic category, reference-based pricing changes the dynamic for pharmaceutical companies. Pharma has had little oversight in establishing drug pricing under the copay model.  However, the power of the consumer is mighty. Reference-based pricing will also work with physician charges since patients will now start questioning their doctors about costs which exceed reimbursement thresholds.

So why isn’t everyone adopting reference-based pricing? Changing protocols is like steering a battleship. It takes a long time. Like much of healthcare, nobody understands it. Providers are not changing prices because only a small portion of patients have plans with pre-set reimbursement levels. So, when the bill reimbursement is curtailed, they simply balance bill the patient. Employees push back hard on their HR departments who have been the path of least resistance.

Educating employees and getting their buy-in to shop for lower costs and cheaper procedures is a monumental task. Disruption is painful, and there is a delicate balance between controlling costs and controlling employee dissatisfaction. This one is going to be a steep climb.

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